By: Padma Ravi, Specialist – CX Advisory, LTIMindtree

What is customer churn?

Customer churn refers to the phenomenon of businesses or organizations losing users or customers. There are two kinds of churn:

• Voluntary churn is when customers decide to leave by specific actions like deciding not to renew a contract, etc.
• Involuntary churn is when they move to another region where your business or company may not provide services or when their need could change to one that your business may not be servicing today.

Customer churn is bad for a business or company in general. They lead to depressed sales and disengaged user experience. Therefore, it is a good idea to monitor it and perform customer churn analysis.

Why do businesses face customer churn?

Businesses have customer turnover for various reasons. It is critical that they are aware of the reasons for losing customers. This insight is gained through customer churn analysis so they can devise appropriate strategies to retain customers. There are a few reasons why customers move away from businesses. Here are some of them:

1. Inadequate or deficient service
   This is the most common reason why customers leave a business. 73% of consumers would not hesitate to switch brands after a negative customer service experience. Businesses should evaluate the frontline teams that service customers to mitigate such experiences.
2. Market relevance
   As businesses grow, they should keep tabs on how customer preferences are evolving. Losing market relevance is one of the key reasons that customers leave a business.
3. Inappropriate pricing
   Price competitiveness is another common reason that customers leave a business. Understanding how to price your service or product for your target audience in order to remain competitive is important.
4. Retention strategies are not working
   Retention strategies should target the right audience at the right time. Offering a renewal right when the previous contract ends or when a new service is launched is critical. Having strategies to reduce churn by 5% can increase profits by as much as 25%.

Impact of customer churn on businesses

As customer churn analysis and prediction enable businesses to gain insight into why they lose customers, it is also imperative for them to know the impact of losing customers. Customer churn usually has an adverse a lagging effect on businesses. It is therefore important for businesses to be on the lookout for impacts.

Here are some of the common impacts on businesses due to significant customer churn:

Brand impact

Usually, when a customer voluntarily leaves the business or company, it is because their experience has not been satisfactory. This could lead to negative feedback and reviews. Thus, businesses should strive to make all effort to engage customers and address feedback as quickly as possible.

Higher customer acquisition cost

Current customers usually are highly valuable and have lower cost of servicing. New customers have higher customer acquisition cost and higher servicing cost during the initial days of engagement. It costs up to 7x more to acquire a new customer than to retain an old one.

Adoption of new services/products

It is easier for businesses to engage with existing customers when launching a new product or service. If the business has a high customer churn, that leads to challenges with adoption of new services or products as this adds to the customer acquisition cost. Moreover, new customers may not be aware of how these services or products could add value, thereby increasing the adoption cost.

Research shows that current loyal customers are 7 times more likely to try a new offering than a new customer. Therefore, businesses should have strategies to ensure that customers don’t leave for the reasons indicated above. Such strategies are based of customer churn analysis and customer churn prediction.

How do we address customer churn?

Here are some ideas to help your business or company address customer churn.

Better customer experience

• Customers should have a better experience in terms of interacting with the business. This starts with having the right tools for the employee experience.
• Website user experience can be augmented by personalization. Businesses should also build experience to capture user feedback.
• Finally, the channels that the customers use should work seamlessly with each other, providing users an omni-channel experience.

Better customer service

• Users should also have a good post-purchase experience with the right customer support experience. These should be supported by tools for both the employees and customers to request services and fulfil requests.
• Users should also have a simple way to communicate with the company–it should not be only a “Contact us” form. Make sure that there are several ways for the users to reach your company.

Competitive pricing

• Businesses should be aware of how they price their services and products.
• They should constantly evaluate and get feedback from their customers on the value and keep an eye on the cost.
• Businesses should have tools to price their services based on the various variables in the markets and customer feedback.
• Pricing needs to be dynamic and competitor prices are a great input to pricing. Having access to competitor prices is an absolute must when businesses are looking to competitively price their services/products.

Endless aisle

• Businesses have started to look at having a wider selection to make sure that customer needs can be fulfilled quickly.
• This enables customers to fulfil their needs in one place.
• Endless aisle as a strategy for addressing customer churn is relatively new and is arduous to get started for a business.
• Care should be taken to make sure that this is combined with overall experience and the customers do not end up having a bad experience.

Monitor churn indicators

• Churn indicators provide insight into why customers leave a business.
• It is a good idea to keep an eye on potential churners and their reasons.
• Investment in churn analytics and developing a good churn model can help identify patterns.
• We can create alerts for any adverse change in real-time that can lead to customer churn.

In conclusion, we understand that customer churn is a key component of any business and critical for its growth. Although, there is cost involved in having strategies for addressing customer churn it is essential for businesses to take action to mitigate churn. The benefits outweigh the costs significantly as indicated above.

Having looked briefly at each of the ideas that businesses can use to address customer churn, we will delve into more detail in the series of upcoming blogs on the subject.

References

• Focusing on customer success for growth
• Smarter way to reduce customer churn
• Breaking the back of customer churn